All of these situations are characterized by the need for exploration and discovery instead of continued execution of the current business model. Firms facing these situations need to treat product ideas and business strategies as hypotheses and run experiments in short iteration loops and small batches to validate or falsify them before committing to scale. They need to engage in serious conversations with prospects, observe the actual environment where the product will be used, and determine the value of an innovation by customer adoption and payment.

Emerging Markets

In emerging markets the “rules of thumb” have yet to be established. This requires startups to leave the BatCave and go and see the ground truth of their customer’s needs and constraints. Established firms have to be willing to revisit key aspects of their product offering and go to market strategy to align them with new market expectations and requirements. Established firms have to adjust internal incentive structures that reward more efficient execution of the current business model to prioritize exploration and experimentation. Startups attempting to scale based on their initial model or established firms scaling based on a model proven in another market will likely either fail to gain traction or be significantly outperformed by firms who had the patience to validate the key assumptions in their model.

One example of embedding exploration of customer needs into a new service offering was provided by Adam Goldstein of Hipmunk. The Hipmunk team made a text chat option available on every page of their site, answering questions directly. This allowed their customers to ask for help or report a problem without leaving the current webpage. It was now very easy for their customers to provide feedback (and for the founders to engage in short conversations) compared to a standard feedback or submit a bug form; this approach also preserved the context of what the customer was trying to accomplish. The promise of an immediate response in a short text chat offered a much lower friction channel to the customer. Although it was less efficient for the founders, it gave them access to many insights about site features and drawbacks that they might have otherwise taken much longer to learn.

A second example of new market exploration was provided by Jocelyn Wyatt of IDEO.org, who shared her experiences in rapidly validating–or disproving in several cases–some key assumptions that her team made in approaching the challenge of improving sanitation in West Africa. They ultimately arrived at solution that married a disposal service with a home toilet, turning it into a portable septic tank that is emptied three times a week.

Disrupted Industries

Industries that are being disrupted where the established incumbents need to incorporate new business models and new technologies into what are proven but obsolete offerings. Some examples are:

Media

Product development / Outsourcing

Health care

Education

Government

Because these industries are undergoing restructuring, companies and organizations can no longer execute business plans developed and refined years ago. They must in fact go back to the customer development, running short term experiments and testing the impact. They need take a more exploratory or discovery-driven approach to planning their operating environment makes long term forecast problematic. They also need to take a wider view of potential competition: they are as likely to be challenged by competitors from adjacent markets or even some armed with technologies initially developed for entirely different industries.

Mark Graban‘s talk outlined a very interesting approach to patient centric hospital design, arguing that some hospitals were designed to impress visitors with a large atrium that does not contribute to care, or in a parallelogram shaped buildings that is architecturally striking but creates triangular internal rooms that have very poor utility. By analyzing traffic patterns of doctors and nurses in existing hospitals and rapidly prototyping individual treatment rooms, new hospitals and care facilities can be built more rapidly, on a smaller footprint at lower cost and yet enable a better quality of care. In addition, a continuous improvement approach to refining treatment practices once the facility is finished allows the quality of care to continue to get better. He cited a hospital in Indiana that was able to effect more than 4,000 small improvements that in the aggregate eliminated millions of dollars in cost, cut treatment delays, and improved patient outcomes.

Boosting the Innovation Curve

A third category is companies that are not actively facing disruption but realize that they have fallen behind the innovation curve and want to improve before competitors or new entrants mount a successful assault. This normally involves the need to make a series of small improvements that can catalyze further change: a “small wins” approach

One example of a company embracing their need for game changing approaches was Intuit. There was an extended conversation among senior managers and change agents that explored how they were moving from decisions based on politics and PowerPoint to decisions based on data and customer validation.

Kuty Shalev related how the Port Authority incorporated new technologies into track management without losing any of the affordances of current solutions. Many aspects of the day-to-day operation of the trains were already computerized, but they were relying on a whiteboard to help manage context and maintenance (a whiteboard that was erased every day so history and trends were lost) and cell phones to help facilitate troubleshooting. By adding tablets that could also take pictures and allow them to be marked up they preserved the critical strengths of the current system: wireless, beeperless, and functional even if Internet connectivity was lost. His firm assisted in the transformation by focusing on small changes quickly: making initial improvements visible within a week and deploying a new system in 90 days. By focusing on small wins and meeting in a small conference room he forced trade-offs to be made by only the most interested.

Lean Startup methods recognize that new markets in particular require a scientific approach of thoughtful experimentation and iteration–-also known as “trial and error”-–to determine what will work and what won’t. It takes an engineering approach to defining the “known unknowns” about your customer, your product, and your business model but still respects the value of entrepreneurial vision and insight in crafting new hypotheses. Lean Startup principles are especially applicable to emerging markets, industries that are being disrupted and companies that have fallen behind the innovation curve.

“A small win is a concrete complete implemented outcome of moderate importance. By itself, one small win may seem unimportant. A series of wins at small but significant tasks, however, reveals a pattern that may attract allies, deter opponents, and lower resistance to subsequent proposals. Small wins are controllable opportunities that product visible results.” Karl Weick

“The Two Meanings of Small Wins” [Condensed and edited]
“Karl Weick’s small wins have two features. They are a quick hit or easy victory, but they are also based on the continuous application of a small advantage. This small advantage steadily applied where it can have the greatest impact ‘improves the odds.’ This is the heart of the second meaning of a small win.”